# Multiple Choice Questions

1. If you had $5000, which of the following TVM methods would you use to calculate what its value would be in three years?

a. Discounting

b. Compounding

c. Compounding an annuity

d. Discounting an annuity

e. Amortizing

2. A security's risk premium is?

a. Its Beat times the market return

b. Difference between the required return and the risk free rate

c. Weighted average of the individual security beta's in a portfolio

d. The security covariance divided by the variance of the portfolio

e. The same value as the market s risk premium

3. Which of the following capital budget model does not use Time Value of Money calculations?

a. Internal Rate of Return (IRR)

b. Modified Internal Rate of Return (MIRR)

c. Payback

d. Net Present Value (NPV)

e. All use Time Value of Money calculations

4. Which of the following factors should be considered in calculating capital budget projects?

a. The selection model to be used

b. Taxes

c. Depreciation

d. Risk

e. All of the above

5. If an organization's debt rating decreases, what will happen to its cost of debt financing?

a. It will remain the same

b. It will decrease

c. It will increase

d. The SEC will ban them from issuing debt

e. It will be more attractive to investors

https://brainmass.com/business/capital-budgeting/multiple-choice-questions-219248

#### Solution Preview

1. If you had $5000, which of the following TVM methods would you use to calculate what its value would be in three years?

a. Discounting

b. Compounding

c. Compounding an annuity

d. Discounting an annuity

e. Amortizing

Answer: b. Compounding

Compounding is the process of finding the future value of a sum of money.

$ 5000 is a single amount and not an annuity.

2. A security's risk premium is?

a. Its Beat times the market ...

#### Solution Summary

Answers Multiple Choice Questions on TVM, security's risk premium, capital budget, debt financing.